Abstract:&nbspThe 1990s and early 2000s witnessed an unprecedented increase in central
bank transparency around the world, yet there has been little empirical work
that convincingly demonstrates any economic benefits of increased central
bank transparency. This paper shows that, since the late 1980s, U.S, financial
markets and private sector forecasters have become: 1) better able to forecast
the federal funds rate at horizons out to several months, 2) less surprised
by Federal Reserve announcements, 3) more certain of their interest rate
forecasts ex ante, as measured by interest rate options, and 4) less diverse in
the cross-sectional variety of their interest rate forecasts. We also show that
increases in Federal Reserve transparency are likely to have played a role: for
example, private sector forecasts of GDP and inflation have not experienced
similar improvements over the same period, indicating that the improvement
in interest rate forecasts has been special.